The government confirmed on Wednesday that a £500m rescue package for the Port Talbot steelworks, owned by Indian conglomerate Tata, would not avert the closure of its two blast furnaces and the loss of 2,500 jobs.
The only other two blast furnaces – operated by Chinese-owned British Steel at Scunthorpe – are slated for closure by the end of the year, sounding the death knell for primary (from scratch) steel-making in Britain. The UK will instead rely on imports from abroad and scrap steel fed into electric arc furnaces (EAF).
But what’s behind the steel industry’s decline, why does it matter, and is there hope for the future?
Why is steel important?
Extremely strong and relatively low-cost, steel forms the skeleton of an advanced economy, underpinning nearly every aspect of modern life. Steel rods run through our homes and office blocks and support our bridges and bypasses. Rolled steel forms the tracks our trains run on, many powered by electricity distributed around the country via steel pylons. The average mid-sized car incorporates nearly a tonne of steel and the alloy is used in everything from food packaging to medical equipment, domestic appliances and military hardware.
Steel comes in many different types and grades, some of which can only be produced cost-effectively in a blast furnace. Once Scunthorpe and Port Talbot are gone, the UK will be the only G20 economy without a single blast furnace.
What’s behind the decline?
Myriad factors, both long-term and short-term, international and local. In steel’s heyday – the late 60s and early 70s – the industry brought jobs and prosperity to places such as south Wales, Sheffield, Corby, Scunthorpe and Teesside. In 1970, the UK produced 28.3m tonnes of steel, the fifth largest producer in the world, and employed more than 320,000 people. Decline has been precipitous. Last year, the UK produced 5.6m tonnes, 26th in the world, and employed about 33,500 people.
Nigel Driffied, professor of international business at Warwick business school, said this was partly down to conscious industrial strategy. “If you want to have a car industry, shipbuilding, or any form of heavy manufacturing, you need a steel industry.
“If other places are subsidising their steel, you have to do the same or have it in public ownership. The point at which we decided not to do that, privatising it and selling it to foreign entities, was the start of where we are today.”
One country that has subsidised steelmakers is China, now by far the world’s largest producer. Its ramp up in exports has flooded global markets with cheaper steel, rendering UK producers less competitive. Amid depressed demand from a fragile global economy, the effect of that oversupply is exacerbated.
In recent years, the UK’s high electricity prices, particularly compared with Asia but also to European rivals, have made it tougher for the UK industry. Primary steelmaking is extremely carbon-intensive and heavily polluting blast furnaces have attracted carbon taxes as the UK aims for net zero.
What next for UK steel and for workers?
For workers, the immediate future is uncertain. At Port Talbot, 2,500 employees will lose their jobs by March and Labour’s negotiation of an enhanced redundancy and retraining package may provide limited comfort. A further 300 jobs will be cut in three years’ time, expected to include roles at its Llanwern steelworks near Newport.
That said, steelmaking in Britain isn’t dead. In return for £500m of taxpayers’ money, Port Talbot will invest £750m of its own money in building an electric arc furnace, due to start work in 2027. British Steel, owned by China’s Jingye, is planning one on Teesside. EAFs need fewer staff to operate them but will come to replace some of the production lost as a result of blast furnace shutdowns. Gareth Stace, chief executive of UK Steel, said that the UK has a glut of scrap steel, which is what electric arc furnaces need to run.
Stace said: “Why would you not be looking to change your steel sector to take advantage of a raw material you already have in your economy?”
What is an electric arc furnace?
Making steel requires extremely high temperatures, of about 1,600C. Put very simply, blast furnaces use coal combustion to strip oxygen out of iron ore. The resulting molten iron is processed to produce steel, emitting huge volumes of CO2 in the process.
While this process makes steel from scratch, an electric arc furnace uses scrap steel melted down by electricity. The elimination of coal makes EAFs significantly more environmentally friendly. Celsa, a Spanish company, already produces steel this way in Cardiff.
According to Stace, demand for “green” steel is growing rapidly, providing an economic as well as an environmental incentive to build more EAFs.
Any downsides to EAFs?
Some grades of steel are very hard to make economically using EAFs. Some observers say the ability to make steel from iron ore, particularly if required to do so in times of crisis or war, is vital for a major economy.
The chancellor, Rachel Reeves, has pledged a review of the UK steel industry in 2025, including consideration of whether primary steel-making could return. To do this without huge carbon emissions would require the use of direct reduced iron (DRI), produced using “green” hydrogen. However, Stace warned that the day when the UK has a good supply of green hydrogen is “a long way off”.
